Australia backs Toyota in working conditions legal battle

Jamie Smyth

Canberra has said it will intervene in a high profile court case to support Toyota's efforts to change workers' conditions at its plant in Australia in order to reduce costs at the country's last remaining car manufacturer.

The unusual legal intervention by Eric Abetz, employment minister, comes ahead of a decision by Toyota on whether to follow Ford and General Motors' Holden unit by exiting car manufacturing in Australia due to the high cost of doing business.

(Read more: Toyota looks to settle suits)

Mr Abetz used a keynote address to the Sydney Institute to issue a warning to unions and employers about the dangers of agreeing overly generous pay deals that undermined business competitiveness.

"Employers and unions must be encouraged to take responsibility for the cost of their deals," he said.

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"If this is not done, then we risk seeing something akin to the wages explosion of the pre-accord era [1970s and 1980s], when unsustainable wage growth simply pushed thousands of Australians out of work."

Mr Abetz said the government would make a written submission to the court in support of Toyota's proposal that its workers be allowed to vote on the changes in working conditions and pay.

Recent decisions by Ford and Holden to cease car manufacturing in Australia in the coming years have stimulated a political debate over wage moderation and the future of manufacturing. The government is under pressure from unions and the opposition to agree a financial package to persuade Toyota to commit to maintain manufacturing in the country.

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Toyota employs 2,500 workers at its plant near Melbourne, which manufactured more than 100,000 cars last year.

A boom in mining investment has driven up wages in Australia and caused its currency to strengthen over the past decade, which has made it more expensive for foreign employers doing business in the country.

Unit labor costs increased by more than 60 percent between 2002 and 2013, more than in any other developed country in the OECD, according to research by the OECD and ANZ Bank.

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"Manufacturers have crippled themselves by agreeing wage deals out of line with inflation at a time when the currency was appreciating. For the traded sector, or for foreign direct investment, this was a burden and for many companies a one-way ticket out of business," said Colm Harmon, professor of economics at the University of Sydney.

"The big question is whether manufacturing has a role in the country now and if agriculture and services like education can replace it," he said.

(Read more: Toyota posts earnings jump, hikes profit forecast)

Toyota is reviewing whether it can maintain its car manufacturing plant in the state of Victoria open beyond 2017 to build a new generation of vehicles. A decision to close the plant would have a devastating impact on the car parts supply industry, which employs up to 30,000 people and is already reeling from Ford and Holden's decision to exit Australia.

The Japanese company is seeking to cut costs at its Australian plant by amending an existing workplace agreement. It has lodged an appeal to a federal court judgment in favour of several workers at the plant, who opposed the changes.

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Mr Abetz said some of the incentive clauses should not be in the workplace agreement agreed by Toyota and said it was in the public interest that workers at the plant be allowed to vote on the proposed changes.

The court is expected to make a ruling in March while Toyota has not indicated when it will announce the outcome of its manufacturing review.

The government has not decided whether to offer additional subsidies to try and persuade Toyota, which received A$72 million in state assistance in the previous financial year, to stay in manufacturing.

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